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CHARLES FERGUSON (fellow for science and technology, Council on Foreign Relations):  May I have your attention, please?  Good morning, ladies and gentlemen -- good morning. 

So hopefully those of you at the dinner last night had a pleasant rest.  And here we are for round two of "American Nuclear Energy in a Globalized Economy."  And for those of you who weren't at the restaurant last night, I'll briefly say I'm Charles Ferguson and I'm  one of the organizers of this event, along with my colleague in the back, Professor Frank Settle from Washington and Lee University.   

This is a joint project with the Council on Foreign Relations and Washington and Lee University and we're very grateful for support from the Lenfest Foundation, in addition to support from the MacArthur Foundation, Carnegie Corporation and Lounsbery Foundation.  And we have an all-star cast here this morning and for the lunchtime panel. This panel will go until 11:00am.  We'll take a break and then we'll shift into the lunch panel at 11:30.  We'll have the speakers present and then around 12:15pm we'll have to leave the room and let wait staff prepare for lunch and then we'll continue with Q&A until early afternoon. 

With that, let me introduce Margaret Ryan who -- those of you who follow the bible in the field, Platts "Nucleonics Week" for the "Inside Baseball" look at energy --  they get a lot of the scoops.  If you want to know the details of what's going on in the industry, you've got to read Platts.  Margaret is a 26-year veteran journalist and editor and she's currently the editorial director of Platts Global Nuclear and Coal Group and it's a pleasure to have her presiding at this event. 

So I'll turn it over to Margaret. 

MARGARET RYAN:   Good morning. 

Thank you so much for that introduction, Charles.  I appreciate the chance to be here.  My job here is, really, to introduce this fine panel that we have prepared to speak to you this morning on the subject of investing in nuclear power.  Is everybody ready?  If I had to subtitle this session I'd call it, "You bet your company or are you Groucho Marx?" 

As the moderator, I'm asked to remind you that, first, this is an on-the-record session; and secondly to request you to do the speakers the courtesy of turning off all beepers, cell phones, other electronic devices so they're not interrupted with a ring and we appreciate your cooperation on that. 

Our group has agreed on the order of the panel.  I'm not picking on any of them here.  Our first speaker is going to be Mark Holt. Mark, as you can see from the bios you've been handed, is head of the Energy and Minerals Section of the Congressional Research Service’s Resources, Science, and Industry Division and has been so since 1997. He's going to give us his overview from CRS studies.  Mark?  Oh, can I add one thing I should say.  I think what we'll do is have everyone go through their speeches so that we've heard from everyone.  It'll only be 10, 15 minutes from each person.  And then we'll take questions. So if you would save your questions to the end.  Thank you. 

MARK HOLT:  Okay.  Thanks, Margaret. 

What I'm going to talk about -- for those that might not be familiar with the Congressional Research Service -- we are the nonpartisan research arm of the Library of Congress.  So we do not take policy positions on any issues that we're responsible for so that we can effectively serve all sides of the debate.  We essentially serve as adjunct staff to anybody -- any member of Congress, Senate or Committee.  So when they call on us for advice and consultation, they know that we will be giving them the best advice possible, no matter what side of the issue they may be on.   

With that said, we certainly can do nonpartisan-type analysis. In this case I'm going to discuss some of the analysis that my colleagues and I have done recently on -- essentially on the economic outlook for new nuclear power plants in the United States, because of the long -- the recent interest in Congress, of course, is what always drives us.  And what are the realistic prospects and what might be the effects of federal policies? 

In context, as we discussed last night, of course, the nuclear power plants in the United States have -- none have been ordered since 1978.  All the orders from '74 on were cancelled.  So it was a very, very long drought and there was constant sort of talk in the industry, or hopeful talk, that something would turn this around.  It was to the point where maybe even if there was just rumor that somebody unnamed might be thinking of ordering a plant that was cause for great excitement, but rumors never seem to come true. 

So as a result, you know, of course, there were a lot of plants that came along, but they were ones that had been ordered before 1974. What was built instead -- and of course, I've mentioned a lot of coal plants were cancelled at the same time -- there was just a lot -- a lot of reasons -- a lot of overcapacity.  What was built was natural gas plants after the end of the restrictions of utility use of gas as an electricity generating fuel.  And that's been pretty much it for the last 15 years is natural gas.   

But that began to change -- well, before I get to that:  What did CRS do?  In the late 1990s, we were asked to look into the future of nuclear power.  At that point the question was not would new nuclear power plants be ordered.  The question was would the existing plants all be shut down?  And we did, you know, look at the economics.  At that time I think -- you know, there was a New York Times article at that point, noting that a number of plants were at-risk and that a certain number might be shut down -- sort of the harbinger of the end of the industry.  And in fact, a lot of those plants were shut down. If you recall, a lot of the plant owners, you know, like Maine Yankee, they almost basically offered to give away the plant, nobody would take it, shut down.  And a lot of plants around that time actually did end up being given away as essentially for the cost of the fuel that was in them.  So it was sort of a grim time. 

So things have changed recently -- well, our analysis at that time concluded that in fact most of the plants would not be shut down,  based on our going forward economics, based on what eventually happened, which was the so-called stranded cost during restructuring where we ended up rate-based so that the plants going forward were not responsible for a lot of that, thus making them economically viable. But then -- so what's changed in the meantime? 

Now, you know, we've heard a lot of the talk about the plants that are not being ordered, but being discussed or that a lot of utilities and other entities have announced that they do plan to apply for the combined operating licenses that we discussed last night -- the new license process.  That, of course, is a big change.  It's not like an order, but it is a big change.  So CRS was asked to look into this and, you know, what is the likelihood of the viability of these plants that are being talked about and is there a new wave of orders possibly coming along. 

So what has changed?  Clearly, the number one change, as I mentioned, natural gas was the generation fuel of choice.  Natural gas prices went up quite a bit.  That was probably the number one change. And of course, the apparent need for new base-load capacity.  The natural gas plants, although they were built as potentially base-load plants -- and that was a new technology, the combined cycle technology to allow natural gas to efficiently be used as a base-load generating technology.  They actually were not necessarily built as base-load, because the capital costs are so low that they can be operated at a much lower level and still be economically viable.  That gave them a lot of flexibility and that was part of their attraction. 

But it appears that there is now, after many, many decades, a need for a new base-load capacity, which is where nuclear comes in. They almost have to be run at base-load to even hope to be economically viable.  And then changes in federal policy to be explicitly, in many cases, pro-nuclear, have changed the scene a little bit.  So CRS has done a number of cost -- a couple of cost estimates recently and we're trying to update.  And I'll just discuss the one that I did with my colleague Larry Parker first.   

We looked at a lot of the standard assumptions that are out there, you know, largely from the Energy Information Administration and other places -- the number of years to build, et cetera; fuel prices.  And came up with a base-case result, which for now, the absolute numbers are not as important as the relative numbers, probably:  Standard pulverized coal plant, 4.5 cents per kilowatt hour; advanced coal plant, 4.6 cents; advanced natural gas combine- cycle, 4.6; advanced nuclear power plant, 5.6.  So based on that, you know, it looked like nuclear power was not off the charts, but you know, still obviously more expensive probably than the others, but maybe in the ballpark, maybe worth considering. 

A lot of that is highly dependent on fuel prices -- the competing fuel prices, that is.  The nuclear fuel prices tend to be quite steady, you know, even with the recent increase in uranium prices overall -- and that's a low percentage of the total cost of the per kilowatt hour.  So we do a sensitivity analysis on natural gas prices, which are very volatile.  And that range, you know, based on dollars per million BTU for natural gas from $3 to $7, basically, you come up with a production cost ranging from 3 to 6 cents.  So at the very, very highest cost you say, okay, well, natural gas is certainly getting in the range of nuclear power and possibly viable.  But at current prices, you know, natural gas still looks a little better. 

And I mentioned, of course, the federal policy so that was one of the -- the main thing we want to look at:  What would be the effect of the incentives that were enacted in the Energy Policy Act of 2005? Would those have an effect?  And the biggest quantifiable incentive is the production tax credit for the first -- not for the first, but for 6,000 megawatts of new capacity.  At one point, 8 cents per kilowatt- hour for eight years.  And what would that do?  And that had been analyzed previously by EIA as, you know, being an important subsidy. And that brought the cost of the nuclear power plant in our -- using the same assumptions from the previous cost numbers down to a range of 4.2 to 4.7 cents.  So that actually brought it similar to the other competing technologies based on the assumptions that we used.  And that is similar to what EIA found, that 1.8-cent production tax credit, which is a pretty big tax credit, would be effective in changing the potential economic competitiveness of new nuclear power plants.  These are plants going in operation by 2015 -- that was the date that we chose. 

As you may know, the workings of the tax credit are more complicated than that.  The way it's being implemented is that all  plants that meet the criteria by the end of -- I think it's 2008 -- can qualify.  Therefore, potentially the tax credit could be significantly diluted if a whole lot of new plants do meet the criteria.  So it makes it a little harder, maybe, to use that for planning purposes.  So that's a potential wrinkle out there. 

We did not try to quantify the loan guarantees.  That's a big one in the Energy Policy Act.  The nuclear power industry considers that, I believe safe to say, absolutely vital to moving forward.  The loan guarantees may be applicable to some of the other competing technologies, so we didn't try to quantify that.  Some industry people have quantified it and come up with a pretty big number, but the loan guarantee -- the operational loan guarantee is very complicated the way it's set up.  They're trying to do it without any appropriations, which potentially is going to lead to all kinds of developments that may effect how useful those loan guarantees are.  So we haven't quantified that. 

The regulatory risk insurance, so-called -- I believe it's officially called standby support -- for the first six plants to provide payments of up to $500 million per plant for delays caused by -- for regulatory delays that if a plant's licensing misses a schedule, created apparently by DOE, then they might be eligible for this.  It's a DOE program.  We didn't quantify that either, but that obviously could be something that would have an effect on whether at least the first few plants -- new plants would want to test the new licensing system or not. 

So those are all things that are out there.  Price-Anderson was extended by the Energy Policy Act.  That's the third-party liability regime which is considered vital for nuclear power.  We did not attempt to quantify that.  As far as I know, nobody has ever successfully quantified Price-Anderson, but it's out there.  Some people say it's not even a subsidy at all, so it's a very challenging issue -- but based on that it looked like these federal policies were having an effect.   

The actual numbers are clearly not set in stone.  This is, I would call, somewhat -- it's a fairly basic analysis.  We got a new analyst, Dan Kaplan, from EIA, within the last six months.  And so he offered to take another crack at it and, you know, maybe getting a little more detailed, a little more sophisticated -- and hopefully we'll keep refining this, as the issue is not going away.   

The bottom line, he came up with pretty similar results, pretty similar numbers.  He was using similar assumptions as well, but refining the model and making it a little more sophisticated, but the basic relative -- actually, the absolute numbers were pretty similar so I won't bother reading them off -- but they were pretty similar. So we felt, you know, more and more confident that we were on the right track.   

Then yesterday the Keystone Center issued its consensus document, fact-finding document.  Now, they did not attempt to compare nuclear power with competing technologies, which is really the most important part of the analysis really.  The absolutes don't really tell you that much, but they came up with an 8 -- consensus 8 to 11 cents per kilowatt hour for new nuclear power plants, which obviously is much higher than what we had.  And we don't, you know, we're looking at some of their assumptions.  They did -- a lot of it is due to the capital costs and the capital costs is true.  Nobody really has any good idea what the capital cost of nuclear power will be.  They escalated some of the, I guess the MIT numbers from 2002 with the escalation in construction costs, which had been extraordinary.   

I mean even -- you may have seen some of the proposed coal-fired plants are coming in at, you know, for a two-unit plant, at $3 billion, which is hugely expensive.  So it's probably good news for nuclear power plants, except that, of course, the nuclear power plants are going to see similar escalations.  So the 8 to 11, does that make nuclear power automatically uneconomic?  The answer, of course is no -- depending on what the alternatives end up looking like.  Although, that said, I mean, the big advantage of the gas plants and the reason those have been so popular is because of their relatively low capital costs and that would seem to give them an advantage, if that really is the scenario that's going to play out.  You'd have to have extraordinarily high natural gas costs for a long, long time to not beat those kind of prices.  So that's just a -- you know, a thought on the Keystone. 

The CO2 effects -- we did analyze that too; although a lot of assumptions are required there -- you know, what with the carbon tax or carbon credits cost and all of that.  But based on some standard assumptions of carbon -- or -- not standard, but some widely bandied about cost estimates that, you know, it certainly looked like those would be effective in helping nuclear power be competitive also.  And of course, the prospect of any kind of serious regulation of CO2 emissions has been one of the hopes of the nuclear industry for many, many years.  It didn't really seem to be getting anywhere, but now recently it does appear that that is a factor in the thinking of a lot of the utilities and other entities that are looking at nuclear power that maybe, you know, we need to have a non-carbon option out there just in case something happens, which it does look like something will happen.  And whether it will be severe enough to change the economics is yet to be seen. 

We talked a little bit about nuclear waste last night. Obviously, a big factor too in the viability of nuclear power, primarily because a number of states still do have laws on the books that unless there's a repository for nuclear waste that -- and including -- and California being the notable one -- that they will not allow a nuclear power plant to be built.  So that factor is out there. 

I think the Keystone report they do make the point that most experts do not see it as a major physical problem dealing with the physical waste -- at least in the short term.  So if there's no Yucca Mountain, if Yucca Mountain is delayed for decades even, that's a relatively short period of time as far as interim storage goes.  It's not really a technical and safety issue, but the concern about surface storage being permanent, meaning -- we talked also last night about the millions of years.  Once you get into that time frame, obviously, surface storage is not nearly as secure as a repository.  So that would be a concern there.  But as far as the near-term policymaking issue, it often is more of a legal and regulatory problem than perhaps a real physical safety problem. 

And the general conclusion we drew from our analyses was that for the economics of nuclear power, federal government policy is going to be crucial.  It doesn't look like without federal incentives that nuclear power's likely to be competitive -- at least based on the assumptions that we were looking at. 

RYAN:  Thank you very much, Mark. 

I guess I can speak without moving the microphone.  Our next speaker is Ray Ganthner.  Ray is with AREVA and he's the person responsible for getting AREVA technology deployed in the United States. 

Ray. 

RAY GANTHNER:  Thank you, Margaret. 

I see the little sign says push.  (Laughter.) 

Good morning.  I wanted to hit a few things on the value side of the equation this morning.  Particularly, my aim is to talk about the value of a nuclear plant and the economic investment that would be the result of deploying a plant in the United States.   

I wanted to say first a few things about AREVA.  Everybody thinks -- and it was clear last night that people were focused on the French aspect of the nuclear industry to some degree.  And I do want to assure you that AREVA is not a French company.  We actually have about 6,000 employees in the United States now and we do about $2 billion worth of business in the United States.  And we're located on facilities in about 20 different states.  So we have a large presence in the United States and it is an important market and energy area for the world and for our company.  Our headquarters is in Lynchburg, Virginia, only about three hours from here. 

So I wanted to talk now about the business case for nuclear energy.  Clearly, the driving factor is the electricity price escalation.  I've taken some graphs here form different parts of the country just to illustrate how the price of electricity -- this is beyond peak electricity rates -- has changed in the last three or four years.  You can see that typically -- take the New York zone -- there's about $50 of megawatt hour in 2003 and it is now about $110, $112 per hour -- approximately doubling.  And you can see for most of the regions of the country, we've seen a doubling of electricity on- peak prices in the last four or five years. 

And if you look at the projections for next year -- actually, for this year 2007 -- we have also different prices within different parts of the country.  The Northeast, obviously, is the highest, but California and Florida are also high areas of price intensity in Texas.  And you can see that there's quite a diversity across the country -- a factor of two between the prices in the Midwest and the New England states. 

If you look at what's happened to the price of electricity just in the last year, though, this is a graph for the eastern hubs.  The price is pretty flat around the $70 to $80 megawatt hour range. Except for that peak last summer, last August, when we had a heat wave, it's been relatively stable.  Also, the Southeast has basically been stable.  A little bit less -- a few dollars less per megawatt hour.  So we're seeing a lot of change in the electricity market over the last five years, but relatively stable over the last year.   

As Mark mentioned, the activities in the last couple decades in building new plants has been focused on natural gas.  The natural gas plants, as indicated by the red bars here, are the ones that have been brought on line in the last five to 10 years.  Starting in the mid- '90s, they became the dominant factor in new capacity additions in the United States, prior to that we had a relatively big mix.  And as Mark said, that was because the price of gas was low and it was stable and it was generally policy to build new gas plants.   

What I'd like to do now is take you through a dispatch curve that kind of sets the basis for the pricing of the different markets and the technologies involved.  This is a curve which shows the accumulative capacity of a particular region across the bottom and the price range on the left.  And this curve is natural gas at $2.  Now, the way this is constructed is each plant is plotted on here as a diamond, in this case.  And its capacity is added cumulatively to the capacity of all the plants that are before it, based on its marginal production cost -- what does it cost to produce a megawatt of electricity. 

So you see all the way on the left, down at the bottom, that's the hydro plants that are very easy, cheap to run.  Then the nuclear plants, then the coal plants, then the natural gas plants and finally the oil plants out to the way right and up the cost curve.  So what you do is you take any particular time of the day or the year and you say, what's the load on that time?  And it's, let's say, 38,000 megawatts as the load at this time.  And you read across and that's the price for that.  It's about $25 a megawatt hour.  So that's how it's calculated.  Another load at say 55,000 megawatts as the load of a peak period of the day and you end up with the price of $65 an hour -- a megawatt hour.  So that's the basic concept.  Again, I'll point out, this is a $2 desk. 

So what's been happening with the price of gas?  Mark mentioned that.  This is the historical from 1976, not too interesting in the '80s and '90s, but got very interesting these last few years.  It's been going up in all the areas.  This is a plot of the residential, which is the red curve.  That's the one we see on our monthly bills. But as far as all the classes of natural gas prices, those have been going up. 

The purple line near the bottom is the price that a typical electric utility would pay for natural gas.  And you can see it's been at or above $6 for the last three or four years.  The last year it's been pretty stable relative to the 2003-2004 time frame, about six- and-three-quarters per million BTU. 

Coal, the other big contributor, has some price oscillations about a year-and-a-half, two years ago.  This shows that the price of  coal for the various different types of coal over the period from 2003 to March of 2007.  And in general it's gone up.  There's been price peak periods, particularly in 2004 and 2005, but it has come down recently, but it's still generally about 30 to 40 percent higher than it was three or four years ago.  That's being driven by the demand for coal in the world.   

This chart shows the change in demand, the growth in demand each year for coal.  And the Chinese demand has been what's driving it in the last few years.  The red graph is the change in demand from China. The green is the rest of the world.  And you can see the tremendous impact that the industrialization of China has had on the coal industry and that's driving prices. 

Uranium's also gone up.  This is a chart which shows, the red line, the real 2006 dollar-adjusted price of uranium over the last 35 years.  And you can see that it's now approaching -- after a period of stability it's approaching some new highs, which we'll talk about again in a second.  But in nominal dollars it sounds -- which was the current "at that time" dollars -- it has been in the low $40 a pound. 

Last year on Spot prices of uranium -- and Spot prices, of course, is not the price that a utility would pay for a uranium supply, but it is a measure that we can quantify.  It's more than doubled in the last year and that's being driven up by some flooding in some uranium mines and the demand for uranium going up with the supply decreasing because of the floods and the predictions of reduced capacity for production, and because of the reduction in the amount of former Russian uranium -- enriched uranium that's being able to come to market. 

So what does that mean for the nuclear plant?  If the price of uranium goes up, the price of the fuel doesn't necessarily travel exactly on the same path.  Whereas a gas plant and coal plant, the price of the actual fuel that they burn is the driving function for the production costs.  For a nuclear plant it's -- the price of uranium drives only a part of it.  For instance, today if we look at what we might have for a typical reload of a $100 million value of uranium and conversion and enrichment, the cost represents a significant factor in the cost of production, but if you look at a forecast of uranium doubling -- approximately doubling with our forecast of about $43 a point -- in the 15 to 20, 25 period, the total cost of the fuel went up to 126 million (dollars). 

So it went up 26 percent total fuel, even though uranium went up 65 percent, so that the message here is that the price of uranium doesn't necessarily drive one for one the production costs of nuclear. 

So let's go back to our dispatch curve and take a look at what happens if we take the natural gas price of $6 and we double the coal price from the previous graph.  The purple or -- you know, the purple color is the gas price going up to $6.  The orange color is the coal price going up to 6 -- going to double. 

And if we take now the 38,000-megawatt load and we find the average price has gone up to about $55 -- so it's gone up from $25 to $55.  

Same with the peak value.  Of course, it hasn't gone up as much, because the differential's not as much up there, but it has increased to the mid-80s. 

So this leveraging effect of the price of fuel on the price of electricity is pretty significant. 

And clearly from this, if the average price is going up, the nuclear plants and the hydro plants and even some of the coal plants are going to be making a lot more margin on their production of electricity. 

So let's look at the nuclear plants that we have on line today. About a hundred gigawatts, a hundred thousand megawatts is the total capacity of the plants.  If we take those plants that have already renewed their licenses, that's the red line.  If we forecast that all the plants will eventually renew their licenses that are operating now, we have the capacity that goes to about zero in 2050. 

And if we assume that the nuclear energy industry should stay about 20 percent of our total production of electricity in the U.S. and put a 2 percent growth on that curve, how many nuclear plants do we need to build during that period of time?  Well, we've got to build about 40 new nuclear plants over that period of time just to deal with the growth of the electricity demand in the United States. 

At the same time, in around 2030, we've got to start replacing the nuclear plants to maintain that 20 percent growth rate, and we have to build about 60 or 70 more large nuclear plants to make up that growth.  And that just is to maintain the same share of non-carbon- emitting nuclear energy that we have today. 

So what does that mean?  If you take a baseline of 200,000 megawatts of additional capacity needed in the next 20 years or so, that means that if we start getting new plants on line in 2015 -- assuming a three- or four-year licensing and a five-year or so construction period -- we need about 25 to 30 new plants by 2025 just to maintain the share, and then 60 or 70 new plants to replace the retiring plants. 

So we've put together a business model, and it's got a lot of different variables in it.  I'll just list them up here.  They're all important; some are more significant in driving the factors that come out at the end than others.  But a couple of -- the key one, as Mark mentioned, is the overnight capital costs for the project and the future electricity prices.  So what I've tried to do here is take a typical slide -- if we say what could the nuclear industry expect to see for a typical new nuclear plant -- I've added all the types of costs on the left here, come up with about a four -- using Mark's terminology -- four cents per kilowatt or $40 dollar per megawatt in total production cost, and you can see the debt service and equity return of the big drivers there.  They represent about two-thirds of the total cost for a nuclear plant.  For debt service, I've assumed an 80 percent project financed under the Energy Policy Act, and I've assumed for the overnight capital costs $2,000 per KW. 

I might mention -- and this was mentioned last night about the cost of all equipment and commodities necessary to build power plants -- it has been escalating tremendously in the last two or three years. This study here was done at the end of 2005, so it's somewhat dated. And we've seen 20 to 30 percent increases in much of the equipment and commodities that go into a power plant; not just a nuclear plant, but any kind of power plant.  The prices of steel, concrete, the basic components of valves, pipes, wires, copper, nickel -- all those have escalated.  We're seeing between 20 and 25, 30 percent even on some of those commodities, so I would be very skeptical to use these numbers to represent today's market. 

So what value does a nuclear plant have?  Try to look at it the other way.  What if we assumed we had a plant in operation, and it was going to operate for the next 60 years, starting in 2015, had a good capacity factor, about the same as the average in the nuclear industry today, then we took the escalated O&M -- operating and maintenance costs, the fuel costs, decontamination and decommissioning costs and we had a capital cost of 5 1/2 percent, and the wholesale price of electricity was only $45 a megawatt hour -- so you can see, that's a  pretty conservative price -- the value of that plant, the net present value of the plant would be about $4 billion today. 

So if you assume that you get it for $2,000 a kW from the previous slide, that would say that you'd be paying $3.2 billion for the plant, and the value would be about $4 billion.  So there's value there that, considering even good investment return, is a good investment for the long term.   

I've got here some slides that I believe originated with NEI that kind of show the effect of the Energy Policy Act.  The top bar is the nuclear plant at about $2,000 a kW.  That results in a production cost of about $60 a megawatt hour.   

If you take an 80 percent loan guarantee such that the cost of the capital is reduced and that you can use that as a way to reduce the production cost of electricity, it comes out to about $40 a megawatt hour.  So it's a tremendous impact of those loan guarantees, assuming 80 percent is available.  If you take also the production tax credits, that adds about another $10 of value to the business case.   

Now the production tax credits are not indefinite.  They expire, I believe, after eight years of operation.  So that effect goes away. It is simply a stimulus to get the industry moving in the direction of building new plants.   

So that looks a little bit at the value side of the equation, and I'd be glad to take questions and answers.  I'll try to provide any other additional information you might need.  Thank you.   

RYAN:  Thank you so very much, Ray.   

Our next speaker is Jim Harding.  Jim is a consultant from Olympia, Washington.  He's worked on a whole series of energy and environmental issues.   

Jim.   

JIM HARDING:  Thank you, Margaret, and a pleasure to finally meet you after decades of reading your work.  (Laughter.)   

RYAN:  Shush.  (Laughter.)   

HARDING:  Along with -- I could put my glasses back on -- along with Tom Cochran, I've been working for the last year on the just-released Keystone assessment of potential for nuclear power plants.  And we looked a little bit at the economics in the United States.    

We also looked at the carbon issues.  We did not look at the competitiveness with other resources.  We looked at proliferation and Yucca Mountain difficulties, so -- and I think it's a sober assessment of nuclear power's prospects.   

Economics is a tough thing to do internationally because the circumstances differ so much.  In fact, it's a tough thing to do nationally because the circumstances differ from region to region and mainly are associated with different financing challenges in and outside of restructured markets.  And even from one restructured market to another, the economics of nuclear power and the viability of financing a nuclear power plant are going to be quite different.   

When the Keystone Group approached the question of how much it would cost to build a new reactor in the United States, we got a presentation from the Electric Power Research Institute, which was less than satisfactory.  They took 13 recently completed studies around the world, knocked off the two outliers -- Czechoslovakia and the MIT report, for no clear reason -- averaged the rest, assumed the plant could be financed in rate base and the output could be sold in an unregulated market and make lots of money.  That's not entirely different from the assumptions that we just heard from AREVA.   

It doesn't quite work that way.  The studies, as we heard when we -- when the economics group went -- decided the EPRI analysis wasn't so hot, we went back to Paul Jaskow at MIT and asked him how he did come up with his somewhat higher numbers.  And he said:  I don't trust the vendors' estimates.  They don't include owners' costs, they don't include contingency, they don't include a number of factors.  I do not entirely trust Asian experience.  They have different accounting practices; it's hard to convert yen and I'm going to say won -- South Korean currency -- into dollars, purchasing power parity, exchange rates, different labor rates, different experience of the contractors and all that, but it's better than nothing. 

And it's probably better than using U.S. experience, which is desultory.  (Laughs.)  And they came up -- and on that basis, they came up with a number, Keystone adopted it.  What we did was to escalate based on Electric Power Research Institute, EPRI data from what's happened to all construction since 2002, and so we came up with a number that is in the $3,000 per kilowatt range for overnight cost, about 50 percent more than current EIA assumptions.  That number was basically agreed to by other participants in the Keystone Group, including quite a few utilities. 

The question is:  Is this trend in capital cost escalation going to continue?  And I think the answer is probably yes, and it's probably worse for nuclear than it is for other resources.  The reason it's harder for nuclear is that we have significant supply chain imbalances because we haven't built the darn things in the U.S., Russia or Western Europe in 20, 25 years.  So we have fewer vendors, we have about a quarter as many end stamp holders, people certified by the American Society of Mechanical Engineers.  We have fewer contractors and skilled crews, and we really don't quite understand the regulatory and market environment in which these things might fit. 

We don't understand whether the NRC licensing process is really going to be sustained, and we don't know for sure what the level of public acceptability is, that'll vary.  California's a different world than New Hampshire or Mississippi.  In parts of the United States, we may have regulators that will allow construction work in progress and will offer and have capacity at existing sites, surplus transmission. That's a completely different environment than if you have to go through five to 10 years of transmission investment, FERC issues, a tough -- citing -- challenge at a Greenfield facility.  And those issues probably accounted for a significant amount of the variation that we saw in the past. 

The best U.S. reactors were, sort of regardless of time, were about a factor of three lower than the worst ones, even when they were completed in the same time period.   

So on that basis, if we guess that escalation's going to continue at 2.5 to 4 cents real per year through 2012, 2013, assuming you started building today, you come up with a number that looks like, in discounted, real 2007 dollars, about $4,000 a kilowatt, twice EIA assumptions, twice AREVA assumptions, entirely consistent with a Standard & Poor’s number released last month.   

Now, it's true that pulverized coal is up, wind is up, combined cycles are also somewhat up, but the capital intensive quality of nuclear power makes this problem worse.  And I don't think forward -- a 2.5 percent real escalation moving forward is an unreasonable number.  That's the number that Black & Veatch uses -- 2.5 is the number that Black & Veatch uses for coal, and I see no reason to think that nuclear's going to be lower than that. 

On the uranium issue, this is a very peculiar commodity.  Today, world consumption -- let me state it differently -- world production of uranium is about 60 percent of consumption.  It doesn't happen in turkey, butter, milk or many other commodities.  And the reason for that is that you need to procure uranium quite a long ways in advance, and beginning sort of in the mid- to late 1970s, people had ordered a lot of reactors in the U.S., Western Europe and Russia, secured long- term contracts -- meaning seven to 10 years for uranium -- at a high price, and they cancelled the plan.  So all that secondary supply came into the market, depressing the price. 

It was followed by privatization of centrifuge -- of enrichment in the United States.  We also bought lots of surplus enriched uranium from Russia.  And most recently, we are blending down or diluting surplus weapons uranium into U.S. fuel.   

So we're running the global nuclear industry on a secondary supply that pops pretty quick.  And it's had the unfortunate impact that existing contracts have fixed prices for uranium; the same is generally true on the enrichment side.  You need to procure the product about four years in advance of burning it.  We're at a price of $135 a pound, pretty much a historical peak.  Utilities for the most part run out of their existing supply by 2012, 2013.  They've got to get back into this market.  And it's hard to tell what the long- term price will be.  This is not -- it's not a physical shortage of uranium, it's a shortage of milling capacity and also enrichment capacity.   

The enrichment issue was somewhat complicated, because when you go to a higher uranium price, you want to decrease the tails assay at the enrichment plant.  Effectively, you reduce the output of that plant by 30 percent.  We don't have the capacity to do that and meet demand. 

So utilities are also -- there are two possibilities.  One is, utilities are going to pay -- are going to buy more uranium than they'd ideally like, or enrichers are going to use market power to the same extent that uranium miners are going to use -- based on this set of problems, we came up with significantly higher numbers in the Keystone report for future nuclear fuel.  It's about three times current levels, at the low end, and about five times at the high end -- now, not a big number, but it is a -- for a utility thinking about a building a reactor today, they have to worry at little bit about whether or not there are sufficient fuel supply and enrichment capacity out there to meet their needs, because the mines may not exist to support that purchase.  You could buy it, but we've got to double enrichment and mining capacity in the next few years to meet demand, even without significant growth in this industry. 

So those are some of the reasons that we came up with an eight- to 11-cent-a-kilowatt-hour number.  We did not do work on pulverized coal with and without carbon capture, IGCC, wind.  The S&P report that I mentioned did look at that question, and I think it's worth checking out.  I don't quite believe their sequestration numbers for some of the technologies, but their bottom-line conclusion is that nuclear power did not have a compelling advantage against wind or coal with sequestration -- slightly higher than both.   

My sense is, if I were working for a utility these days, my choice between those technologies would not be based so much on busbar economics as on transmission and regulatory risk factors. Everything's up. 

And in a restructured electricity market, I don't think busbar economics is even remotely relevant, because I think financing in that environment is almost impossible, given the -- only a small fraction of electricity, even in a restructured market, is traded at the gas clearing price.  (Chuckles.)  Long-term contracts are not available at that price.  If you can't rate-base the plant, your stream of revenues associated with that plant is enormously unpredictable.  And therefore you got to go not 50 percent debt and 50 percent equity, but more like 70 percent equity or 80 percent equity, and a high price for equity. And that drives the price up and, I think, makes it extremely hard to finance. 

So at that point I'll end. 

RYAN:  Okay.  Thank you so very much, Jim. 

Our last speaker today is one of the guys who have to make a decision here.  Everybody else has talked about factors.  Jim Rogers is the board -- the chairman of the board, the president and the chief executive officer at Duke Energy, and he comes from a background in the gas industry.  So he's bringing a new perspective to the nuclear industry.  Jim? 

JAMES ROGERS:  Margaret, thank you very much.  I am delighted to have an opportunity to be here today. 

Let me start out, if I may, by setting the stage.  I'm an optimist by nature.  To be in this job, you have to be an optimist. Actually, to be in the energy industry, you have to be an optimist. (Laughter.) 

But on the future of nuclear, I would characterize myself as a skeptical optimist. 

It sounds like a contradiction in terms to say it that way, but quite frankly you have to understand where I've started.  I had the good fortune of becoming a CEO of this industry when I was 40 years old. And the lesson of that is that I got to be a CEO of a company that had just written off $2.7 billion for a failed nuclear plant, was on the ragged edge of bankruptcy -- that's the only way 40-year-olds get these jobs, by the way -- (laughter) -- and my assignment was to come in and really rebuild the company, rebuild the relationships, rebuild the confidence of the financial community. 

And then several years later, after we kind of made progress with that, we merged with a company that had written off about 1.5 billion (dollars) on a failed nuclear plant that they had after it was 90 percent completed, converted it to a coal plant.  By the way, it's my most expensive coal plant.  (Laughter.)  And that conversion occurred, and as a consequence of that, the total write-off of those two companies was really closer to about 4.2 (billion dollars) to 4.9 billion (dollars), which, by the way, coincidentally, is greater than the full amount in the Energy Policy Act for loan guarantees for nuclear -- (laughter) -- which is a coincidence I hadn't totally recognized until I was sitting here adding the numbers up. 

But let me tell you who Duke is today.  We're the fourth-largest operator of nuclear in the U.S., we're the third-largest consumer of coal, 98 percent of our electricity comes from coal and nuclear, we're the third-largest emitter of CO2 and I feel that we have a special responsibility to address the climate issue because of the emissions that we have today, and I've been working on this for a number of years. 

The other way to think about this is is that my number one job is reliability.  When one of my 4 million customers throws a switch, power has to be there.  In fact, they take that fact for granted, and I think that's a good thing.  But I think that at the end of the day, I have to make decisions that -- to make sure that there's a reliable supply. 

So that sets the stage.  Let me turn now and ask you to sit in my seat.  You'll like the pay.  (Laughter.)  But I'm not sure you'll be excited about the decisions that you have to make in this world of uncertainty with respect to the way forward in making sure that there's reliable supply when the switch is thrown.  I don't have the luxury of delaying my decision.  I have to make decisions -- as I look out over the next decade, I'm going to spend, based on current  projections, somewhere between 12 (billion dollars) and $15 billion for new generation, and that's to serve consumers in five states: Ohio, Indiana, Kentucky -- which is really the manufacturing heartland of our country, when you look at the auto industry, when you look at steel; we can walk through that -- but also the Southeast, which is one of the fastest-growing areas.  The number of people moving out of the Northeast and the Upper Midwest to the South with a demographic switch -- and, you know, North Carolina and South Carolina are good places to live -- about as far south as you can go and get four seasons, and it's -- having lived there for a year now -- pretty enjoyable.  If I had known this early, I would've probably moved earlier.  (Laughter.) 

But the fact is is that I only have five ways to make electricity.  I can do it with coal, I can do it with natural gas, I can do it with nuclear, I could do it with renewables and I could do it with what I call the fifth fuel, energy efficiency.  And we're making and have plans to make significant investments in all five, and as I said last night, all five have to stay in the energy equation.  We don't have the luxury of taking any of them out.  And particularly if we want to achieve the economic growth of this country and at the same time solve the carbon problem, it would be a big mistake, given the uncertainty with respect to the future, to take any one of these out of the equation at this time. 

So I'm sitting here, and I'm thinking, okay, five fuels -- not a single one of them doesn't have negatives.  Every one of them's got strengths, they've got drawbacks, and so I measure them against four criteria:  Are they available?  Is it reliable?  Is it affordable to my customers?  Is it clean? 

And in all these areas, each of them -- and it's a long conversation and we could have it with respect to each and how they compare to each other, and that's a worthwhile thing because what I find -- and I've spent the last two days on the Hill -- very few people really connect the dots with respect to how electricity is generated and how these fuels fit together and the pluses and minuses of each.  It's remarkable, quite frankly.  I find the level of understanding with respect to how these fit together, and it really tells me that I have much more work to do really to educate people.   

And at the same time we're talking about climate -- and I'm an advocate -- as you all know, we participated in USCAP.  We've called for a nationwide cap and trade.  I'm the chairman of EEI today, and on my watch there's actually been a change in our position to support regulation of carbon, consistent with the principles of EEI.  So there's been some significant movement on our industry, which represents one-third of the emissions in this country.  And by the way, on USCAP, we've had companies all the way from GE, which was a founding member like we are, and others join, like GM is major, DuPont was there originally, Dow.  So we've got Fortune 50 companies really signing up to address this issue.  And in many senses of the word, corporate America is really leading the politicians in this country to address the issue of carbon. 

Now, you're still sitting in my seat.  And what I'm going to ask you to do is I'm sitting here and I'm saying, okay, there are pluses and minuses of all these fuels, I have a lot of uncertainty.  I do not know what the rules are going to be with respect to climate, and I doubt that I'll know about what the rules are before 2009 and 2010 -- and that's a conversation in itself.  If I look at carbon capture -- and I know my friends in NRDC are quick to say, not to worry, carbon capture and storage will be here in 15 years -- but I agree with them, that yes, it will be here, but I'm not so clear as to when it will be here in a scalable way; I'm not so clear as to what the costs will be. And I think the MIT study is instructive.  And as I listened to Mark's presentation and Jim's presentation, unless you fully have developed the cost for coal with carbon capture and sequestration, you're not really doing apples-to-apples against nuclear.  Remember, nuclear has zero greenhouse gases.  And I think that, to me, at the end of the day, our climate objectives are going to trump how we think about this cost structure going forward.  And I want to come back to that in a moment.   

But we have uncertainty about carbon capture.  We have uncertainty about public acceptance, although you could point to studies that say the acceptance is growing.  I think we have uncertainty about what kind of support we'll get from policymakers, not from the get-go sitting here looking down the road, but I'm saying how about five years into a building program, or 10 years into the building program, or 20 years from now?  I think it's not clear.  And quite frankly, the decisions we make are decisions for the next generation.  I mean, I apply the grandchildren's test to my decisions. And most of these politicians apply the reelection test.  (Laughter.) And that's a fundamentally different way to think about long-term investments.  Our industry is the most capital-intensive.  The cycle times in terms of investment of capital are very long.  And so as a consequence of all that, we make decisions for 40 and 50 years from now, and those are a fundamentally different time frame from those who make decisions, as I said a moment ago, based on reelection or just based on the next decade.   

The other issue -- and I mentioned it last night, and Ray picked up on it this morning -- the cost to build continues to escalate.  And when Mark was referring to the $3 billion coal plant that went from 2 to 3, that was our plant, okay!  (Laughter.)  I mean, I was saying, boy, he really picked me out!  (Laughs.)  Polite enough not to identify me, but I felt identified.  (Laughs.) 

But the point here is, is that we're seeing cost increases everywhere. And I will give you one of these statements that you heard it here first, and maybe you haven't heard -- maybe you've heard this before. I'm looking at the decision made by the Florida commission where 70 percent of electricity for Florida power and light comes from gas. They just denied the building of a coal plant; can't build a nuclear plant for 10 years.  And I look at where California, they're never going to build a coal plant, not going to build nuclear plants. They're going to save themselves.  (Laughter.) 

And by the way, they have a terrific program, should be proud of it, but it isn't as good as you think it is, because when you look at the per capita use in California in terms of the growth and per capita use, it's the same as New York.  Now there's different reasons for that, but most people don't do that comparison.  One of the reasons that California's got a per capita use growth so small is think about the energy crisis in 2001 and `02.  When you do brownouts, you really reduce the energy usage per capita.  And so I think there's a very -- we need to get into the numbers and kind of compare apples to apples and all of this, which really leads me to say, okay, let's look at the nuclear option, let's talk about the investment community and how they see it. 

I sit here today, and if I build a nuclear plant that we are going to file COL on, an existing nuclear site in Cherokee County, South Carolina, that -- we project that to be about a $6 billion project.  We're the fourth or fifth largest utility in the United States.  That's one-fourth of our market cap, so I'm thinking about making a bet on one-fourth the value in the market today of our company.  And having the experience of cleaning up after failed nuclear plants -- and that's why I used the word "skeptical" -- I want to make sure that we have the right political and financial support from both the state and federal levels in order to achieve this project. 

And one of the things that we have done is we've gone to the state commission in North Carolina and asked for a nuclear development cost recovery because we're developing this option for our customers. And if we jointly decide not to pursue it after we've developed it, we think we're entitled to recover those costs, and the North Carolina commission said yes to that because they see that as part of our future. 

And by the way, the North Carolina commission when they approved our coal plant, they basically said it would be imprudent of us to not  complete this project even though it wasn't least cost and to build gas.  And the point is, is that what you're seeing in this country is you're going to see a build-out of gas.  In the decade of the `90s, 90 percent of all the new generation was natural gas, looking at what the prices did in 2000 and up.  I'm getting ready to predict to you the next five years it's going to be 60 to 70 percent gas, and we've maxed out our use of coal plants, we've maxed our use of nuclear plants, which wasn't the case starting in 1990. 

But as we go forward, all incremental supply of electricity -- we're looking at 40 percent increases in the demand of electricity by 2030, you're going to look out over the next five to 10 years, you're going to see a dramatic increase in the need for natural gas.  And I think that's going to -- I mean, if the price is $8.00 today, I think you ought to put $10.00 to $12.00 in your model, because I think if we have a hot summer and a cold winter back to back, which we haven't had yet, you're going to see a huge increase in the demand for natural gas.  And last summer was the first summer that we actually pulled gas out of storage in the summertime when we're normally filling storage for the winter to use for electric generation. 

Now, okay, I've spent $6 billion, I've got the development costs covered, so I can develop the option, and we just worked in South Carolina to pass a law to allow us to get the financing costs during construction, which would be critical, because the construction period is so long.  We're working with the legislator in North Carolina with a similar provision, and we'll know about that in a month.  And then what we're going to do is, I'm not going to order any equipment until we get preapproval from the regulators in both South Carolina and North Carolina that allow us to go forward.  So all of this is going on at the same time we're before the NRC trying to move our COL along, and we'll be filing that in the fall.  We'll be one of the first two or three companies through the gate.' 

We talked a few moments about the Federal Loan Guarantee Program, and in our -- a coincidence, I met with Chris Weiss (sp) shortly before this meeting, and they actually handed me a sheet of paper that said nothing would be financed under this program in terms of the way it's structured. 

And I won't get into the technical details of how it's structured, but they basically say that it will lead to project financing.  And they go through a very detailed explanation.  And they say, "And by the way, the dollars that are going to be allocated under the 2005 allocation is really quite de minimis, and it's 4 billion (dollars) for all power facilities, not just for nuclear."  So that's not even a drop in the bucket in terms -- if you think about for nuclear to have the same share today in 2030, we have to build 35 nuclear plants between now and 2030.  This 4, 5 billion, it's nothing.  It's trivial. Has no policy implications whatsoever.  It has no impact on the real world.  It's symbolic.  It really says we're not serious about advancing this option, or we'd do something better than that.  I basically have taken the position publicly I will not build a nuclear plant unless I have the ability to get financing costs during that period of time of the construction. 

And I guess I'd say one other thing.  Tom did a terrific job last night over dinner convincing me that proliferation and safety are not issues.  (Laughter.)   And Michael chimed in on the proliferation a little bit.  But Tom, I really want to thank you for -- I slept better last night than I have in a long time.  (Laughter.)  As a friend of mine used to say, I slept like a baby -- slept for an hour, cried for an hour, slept for an hour -- (laughter).   

But I do think we need to break the logjam on this situation. And we have to do that.  And I have some ideas, and I won't jump right into them, but I do think that we need to break the logjam and that is a critical thing.  And I get increasingly concerned about the storage around the country on site and that we need to start thinking thoughtfully about how we make that transition.  And if the government can't make good decisions about this, then maybe we need to start making decisions and moving forward.  And I think the notion of reprocessing, while it's been shelved for a very long time, needs to be scrubbed off and thought through, and we really need to throw our energy into developing that option going forward. 

I would say when you talk to the investment community -- you know, I talk to them all the time.  Average age of the analysts that I talk to --  hedge fund, you know, long-term investors -- most of these are between 25 and 35.  They have no memory, none, zero, of the '70s and '80s and what happened.  Now, they've read the books, but they don't have any memory.  And they're smart, but the fact of the matter is we've almost forgotten the lessons that we learned out of the '70s and '80s.  I remember them because in the '70s I was a consumer advocate fighting rate increases of utility companies who had cost overruns on their power plants.  And so I sit here today saying that one of our jobs is to educate the financial community about the risk and the regulatory risk.   

And the fact of the matter is, most of the investment community today makes decisions based on what's going to happen two to three years out, and if you think about it it takes a decade to bring on line a new nuclear plant, this is not in their planning horizon.  So as a practical point, you really don't have well-developed thoughts about this. Now, the rating agencies have stepped out and started to think about it, but what the rating agencies simply say to you, do as much of it off balance sheet as you can, and you should have a world-class strong balance sheet.  (Laughter.)  Got that.  Of course they want us to have that, but it might not be the most cost-effective thing with respect to providing electric service to our customers. 

So I would summarize by saying, if we're serious about climate we got to get serious about nuclear.  And we got to have a national conversation about whether it's proliferation or safety or spent fuel. We need to say: What do we value more?  What is the greatest challenge going forward?  And I say that to you as somebody that's thought hard about this issue.  I've been very involved with the U.N. Foundation and the Club of Madrid, starting to think about what the framework ought to be post-Kyoto.  And I personally believe that while the challenge is great for the United States, it's even greater for the world. 

We have 2 billion people -- and I think I heard that number last night -- but we're projecting to have 1.4 billion by 2030 that will not have access to electricity.  And you know, if -- and that's access to the modern world; that's access to computers.  And you know what?  It would be wrong for us to deny them any more than they've been denied access. 

So on the one hand we're dealing with that, at the same time many countries are calling for a 50 percent reduction of CO2 in the world below current levels, some below 1990 levels.   

And so this task of addressing climate is enormous.  And whatever our conventional wisdoms have been about nuclear, if we're serious about climate, we'll need to revisit those conventional wisdoms and see if we can find a new way to think about it, a new way to deliver it.  And that is really going to be critical, because I think the number one challenge in the world is not the proliferation safety issues or the storage issues around nuclear, I think the number one challenge is climate.  And I think if we're serious about making a dent in that and going after it so we don't move from mitigation to adaptation, if we want to minimize how much adaptation that we have to do around the world, and recognizing that it's the poorest countries that are going to be most affected by climate change, we need to look at those higher values and those higher goals and revisit this issue in that context. 

Thank you very much. 

RYAN:  Thank you so very much, Jim. 

Luckily, our speakers have been very concise and we do have quite a bit of time for questions.  And I'll open up the floor -- I do have one question.  I'm going to take the moderator's prerogative and ask one question, and I'll throw it open to anybody who can ask -- who wants to answer it, rather. 

Given what everyone's been saying last night and today, is it possible for us in the United States to build long-term facilities, such as nuclear, especially in an era of escalating construction costs, in other than a crisis?  Can we take those decisions when -- and in a timely way, or are we going to have to wait for blackouts, panic and a lot of blaming? 

ROGERS:  I think Jim Schlesinger once said this, that in this country we tend to swing between complacency and panic on energy and environmental issues in this country, and that we often don't act until we're in panic.  And you know, we've spent the last decade-and- a-half with the real price of electricity actually going down.  We're in a period where the real price is going to go up, even if we don't build nuclear plants.   

And I think that we have to have this national conversation, and we need to start acting now, because these are not issues -- that shows you the shortsightedness of the Florida commission -- I don't do business with Florida, so I can say that -- because what they've basically said is, we're going to build natural gas until we build a nuclear unit.  And I think it's an open question about when they build a nuclear unit.  And we -- by the way, when you look at the production curves on natural gas, we do not have the infrastructure to support that kind of increased demand for natural gas.  So we're going to have a train wreck on gas and that's going to have a ripple effect into every other part of the business.  And actually, if you go to the chemical industry and you look at the number of facilities that they're building outside the United States, the number of jobs that are going to other countries rather than build the facilities here, and the primary driver for them moving offshore is natural gas prices.  

And so I think -- and this gets back to my point -- we talked about this last night at dinner a little bit, and that is we're not really looking at how all these pieces fit together and the interrelationship.  And that's why we have to have a conversation about this, because our IQ on this issue -- pretty low.  People that have to make the decision, the IQ is pretty low.  And even for Americans -- I mean, we only have 70 percent of our people graduate from high school -- my God, when I saw the statistic, I couldn't believe it -- our IQ on this is very low.  And so one of the things we've got to do is raise our awareness and thought about this.  And it will be very interesting to see how the American people think about climate on the one hand, and nuclear on the other hand, and make that trade-off because it's got to be part of the answer.  It won't be the complete answer because there are no silver bullets, no complete answers.   

So I think that we have -- this country is really about panic, and we have to be pretty close to panic before we're really going to make the hard decisions on these important issues. 

RYAN:  Okay.  Anyone?  Ray? 

GANTHNER:  I certainly agree with what most of Jim said.   

I would just like to add that from an industrial standpoint, I think that the country certainly has the capacity to be able to build the required number of nuclear plants that we were talking about here, 20 to 30 plants by 2025.  The question is still the will.   

If you look at the base that we had back in the early 1960s and '70s, when we started the first nuclear commercialization efforts, and the plants we have now, we didn't have a trained force to work on nuclear plants; we didn't have all the engineering; we didn't have the designs, didn't have the infrastructure to build the plants.  But at one time in the early '70s, we were working and building 150 nuclear plants or more at the same time in this country.  Without any kind of base to start from, we did that in the 10 years from early 1960s to early 1970s period.   

We now look at another generation of nuclear plants starting in the next few years.  We've already got a base of a large nuclear industry in place.  We're starting off much better than we would have started off 40 years ago.   

So I think the industrial capacity will rise to the occasion. I'm a market optimist.  I think the market will respond.  What it takes is strong signals from the eventual users of these nuclear plants, the electric utilities, the power generation companies, to signal to the market that it's real.  And the market will make the required investments, and the workforce will be there.   

RUTH G. BELL:  Sure, I'm Ruth Greenspan Bell.   

I wanted to ask Jim Rogers a question, because he mentioned, you know, the importance of reliability.  Everybody turns a switch and they want the energy there.  And you also talked about efficiency as one of the five sources here.   

And you know, it seems to me, a lot of the discussion about efficiency seems to be centered around adding insulation, you know, Energy Star appliances and stuff like that.  But there's hardly any discussion, and I'm asking you as a utility executive, about lifestyle.  You know, it's not just turning on the switch; it's like turning on every switch in your house.   

And I'm just curious, because it seems to me that in some ways that's -- you know, we're talking about demand; we're talking about supply and all that.  But we're -- there's not a whole lot of really -- except for in my view kind of -- something beyond lip service to efficiency but not beyond that, you know, discussing how lifestyle changes can factor into this, and your difficulty as a utility executive kind of dealing with that issue.   

ROGERS:  Well, that's a good question.  And let me say first of all, I'm agnostic about whether any one of the five I pick, okay? So let's -- I don't have a bias for coal or gas or nuclear or renewables, wind, solar or energy efficiency.  So I'm agnostic.   

On energy efficiency, what might be the fifth fuel on my list, it's number one in terms of what we ought to be doing.  We can make -- we significantly underinvested in this country in energy efficiency. We can make significant greater investments, but we have a broken paradigm in terms of the regulatory model and how we do it.  It's broken.   

And the fact of the matter is, we need to find a way to deliver energy efficiency to maintain the comfort and convenience of consumers rather than sell them it as sacrifice.  Now we need to do that, and all the studies show that people are becoming increasingly aware of their energy footprint, but that's a slow process.  And if you look back at all the demand-side management programs that were done in the '80s and '90s, the bulk of the money went to educating people to use energy wisely.   

I personally think the paradigm change, and we filed for this in North Carolina; we're going to file for it in South Carolina.  We've come up with a new approach; we call it the ”Save a Watt” approach.  And I won't get into it other than to say --  

RYAN:  What did you call it?   

ROGERS:  ”Save a Watt”, but other than to make this one observation about it.   

I personally believe that in the same way, in the 20th century, we provided universal access to electricity around this country -- that transformed our country and according to the National Academy was the greatest engineering achievement of the 20th century -- I think our mission in the 21st century really ought to be providing universal access to energy efficiency products and services to all our customers.  And I'm prepared to change my standard-offer service, so putting a chip in your refrigerator and a chip in your air conditioning, investing in changing out your furniture -- I'm prepared to spend those dollars, because I have a lower cost of capital than all my residential consumers and commercial and industrial.  I have the trusted relationship, and we want to change the regulatory regime, so that's one of my missions.   

And as we look out at a 40 percent growth in demand of electricity in this country, I think we could cut that by 50 percent. I mean, there's -- studies have been done by Mackenzie on a worldwide look, and I think we need to spend the money and cut that.  Now, we can debate about whether we can do more, and I'd be delighted to do more, but the problem is now even though California has done this decoupling which makes companies economic development, there is -- nobody has adopted a regulatory model that incents us in the same way we're incented to build new power plants.  So I think the great challenge is to change that regulatory model so that we're incented to deliver, save (on watts ?), and I think we'll deliver them. 

We've done a lot of studies with consumers, to your point -- we're not -- electricity use is back of mind, not top of mind.  To move it from back of mind to top of mind -- Procter & Gamble's experts are doing that, and they spend zillions on advertising.  I don't think we can do that, and I actually think it's a waste of money, which really leads me to saying we got to change the -- how it's actually delivered.  And it sounds a little bit like a "mother knows best" world, but, quite frankly, we should value efficiency in this country and change our regulatory regimes to assure that it's implemented. 

TOM COCHRAN:  Tom Cochran with NRDC.  The proposed plan, the Cherokee or the William States Lee III plant -- (soft laughter) -- some people who collect these kinds of data have you down as proposing two plants at that site, and it was confusing to me, when you were betting a fourth of your company, whether that was on two units or one unit -- two units.  So you're still planning to go ahead with COL on two units and -- now, I would just like to get a handle -- I mean, Duke has its hands in a lot of people's pockets to fund these two plants, and I would like to just see what the number is, if you go ahead and build the plants, in terms of what the total subsidies are, and if you could help me sort out how much you expect to get in subsidies for -- I don't know if you're going for an early site permit, but for a COL -- is DOE paying for half of that, and how much is that?  How much, in your calculus, do you get from the loan guarantees or from the other -- I mean,  obviously you're going to compete with a lot of other people for the 2005 Energy Act guarantees, but what are you putting in your calculation?  And how much do you get from the states in terms of being able to collect your money before you deliver any power? 

ROGERS:  The subsidies is really an interesting question, and we talked about this a little last night, and I won't repeat that. I'm really better on the answer to subsidies after a couple glasses of wine -- (laughter) -- so I'll be a little more mellow this morning. 

But every fuel, every option has got subsidies.  The $3 billion LIHEAP program is a subsidy to natural gas. 

And I've heard some people say that natural gas might be the most subsidized industry in the United States.   

And then I've heard some people that say coal -- we just got $250 million of tax credits, one for a coal gasification facility in Indiana and the other for a super-pulverized coal plant, because they wanted to encourage us building what they believe is significantly improved coal plants, recognizing in the United States that coal is going to go from 51 to 52 percent of electricity -- supplying electricity to -- under the IEA study, to 57 to 58 percent.  And by the way, by 2030, China will have twice the number of coal plants that we have in the United States. 

So I'd be delighted to kind of -- and I'm going to get every subsidy I can -- I just want to be straightforward about that -- because to the extent I can get subsidies, I reduce the costs.    

In Indiana, on a coal gasification plant, the legislature said:  We want that coal plant built.  We're a coal- producing state.  We're a manufacturing state.   

And they basically gave me a subsidy for our company of about $100 million.  And then the government gave a tax credit of 133 (million dollars) to develop coal gasification because they wanted a new coal gasification plant built, so we can actually have at least one project on carbon capture that's the scale it ought to be. 

We're doing a -- we're involved in two or three other carbon capture projects, but they're so small, they don't fit the criteria set out by MIT to have a meaningful study of the opportunity. 

So yeah, Tom, I'd be delighted to give you the list of subsidies.  

QUESTIONER:  Just to follow up, I mean, I'd like to see it for the gas and for the oil and for the coal and for the wind. 

ROGERS:  I've never seen -- 

QUESTIONER:  It would be useful to see these projections of cost.  Well, let's see if all the projections of the market distortions to go along with these -- (off mike) -- so we can find out how much penalty it is -- (off mike) -- efficiency with respect to fuel --  

ROGERS:  Actually, y'all should know, after a couple glasses of wine last night, I leaned over to Tom and said, "You know, the NRDC has been subsidized."  (Laughter.)  And to the extent anybody gives money to them, they get to write it off.  That's a subsidy. 

And you know, they're in the business of raising money.  And so they'll pay some taxes on the money they raise every year, because they're being subsidized by not paying taxes like every other entity. 

GANTHNER (?):  As I recall, you admitted to giving them money, too.  (Laughter.)   

ROGERS:  Yeah.  (Laughs.)  But that was after two glasses of wine. I'm just tired of the subsidy question.  (Laughs.) 

RYAN:  Okay. 

ROGERS:  But I do think that's a work -- you know what?  I have never -- I actually have never seen a really developed study on subsidies.  And I would -- anybody that has one or access to one -- I'd love someone to send me one.   

It would be a worthwhile analysis.  I mean, we talk a lot about subsidies.  We ought to know what they look like, because nobody has really added it all up and done the comparison across the board, to my knowledge.   

GANTHNER (?):  It's a dreadful topic.  (Laughter.)   

Is accelerated depreciation a subsidy? I mean, you can compare resources with each other, but at some point, you start getting outside the boundaries of energy, and you're thinking more in terms of the overall economy.   

Quantifying some subsidies is dreadfully difficult.  Price- Anderson would be a classic.  Many subsidies involve risk shifts, and Price-Anderson is one of them. It's an unquantifiable risk shift.  (Chuckles.)  And attempting to estimate what its value is, is extremely difficult.   

So I think it's worth talking about the subject in general terms, but thinking you can come up with exact numbers is a bad idea. 

I do think what is a good idea and far more important and useful for Keystone or any other enterprise to tackle, is the question of making energy efficiency into a workable business model for the utility industry.  

ROGERS:  Actually, what we proposed in North Carolina does just that, in our judgment.  And you should appreciate that I've spent that last year-and-a-half as a co-chair of the National Action Plan on Energy Efficiency.  So I've looked at every plan in every state and listened to a lot of the smartest companies in the country talk about this.  And that's when I walked out of the -- after we did our first report last summer, I walked out of there saying, you know, we don't have it right in this country yet.  And so we tried with our Saver Watt to try to get it right.  It's not perfect and it needs to be modified, I suspect -- it will be.  But I do think that is the first and important effort that needs to be made to get the energy efficiency investments we need in this country. 

QUESTIONER:  Just for the entire panel.  Back when they floated the 2005 Energy Act, the Congressional Budget Office found that the chance of default on the nuclear loans is greater than 50 percent.  I'd like, you know, for you just to address that, first, why that was so great, and why the American public should think that that's a sound investment. 

RYAN:  Do you want to be first, Jim? 

PANELIST:  I can talk about that.  We looked at the CBO report, and I think it was legitimate at the time.  But 2005 is a while ago, and gas prices have changed.  So I think the default risk is different than they describe.  It may not be -- I don't know whether it's higher or lower, but it is different.  In general, I think you'd have to do this right; you'd have to look at the very specific economics by region and the specific financing.  And the other moving piece is are the final rules on the loan guarantees, how they will be treated, how they will be received by Wall Street, and how regulators potentially approving a plan in rate base will -- are they going to set a cost cap, are they going to set performance requirements, and how does that interact with the loan guarantee?  I think it's a difficult question and you can't do it nationwide. 

RYAN:  All right.  Yes? 

QUESTIONER:  So AREVA has no opinion on the fact that there are cost savings later? 

PANELIST:  Well, that's basically the situation.  You know, that was before the 2006 Act, before the subsidies, before the current situation.  But I think everybody in CBO and EIA certainly have been very, very concerned about the financing of nuclear power plants, so they would certainly still probably express skepticism, I'm sure. 

GANTHNER:  I don't understand that comment about AREVA doesn't think something.   

QUESTIONER:  No, no, I just wondered, given your experience in Finland --  you know, CBO was saying that they didn't believe that you guys were going -- you have a greater than 50 percent chance of default on the loans that they were going to offer. 

GANTHNER:  Well first of all, AREVA doesn't take the loans, it's the builder of the plant that is the loanee -- the loaner -- borrower, that's the better word.  (Laughter.) 

QUESTIONER:  They say that chance of default was greater than 50 percent because they posited that the cost of electricity would not be competitive with other sources.  That seems to still be the case, given what we've heard from Keystone and elsewhere.  So I'm, again, just wondering why we should -- why the American public should back loans for an industry that they may or may not pay back.  (Inaudible.) 

ROGERS:  I'm actually quite surprised that it's greater than 50 percent.  I mean, I bet if you went back and looked at every plant that was built in the '70s and '80s and looked at how many were cancelled -- I just have familiarity with a couple -- it would be interesting to see just on what happened when this was a new industry. 

I think the default rate would be much lower now because the rules are changed at the state level, the approach is different now, we have a, you know, 40- to 50-year history.  I actually think the default rate would be much lower than that.  My personal view. 

MITZI WERTHEIM:  I'm Mitzi Wertheim with the Center for Naval Analyses.  And I've been trying to get people to think about the complexity of the energy environment story for 2-1/2 years now. When I talked to Jim Watkins, who was a former Secretary of Energy and was discussing it with him, he said, "Mitzi, if you can't get the story down to a fifth grade level, they'll never get it." 

So I've been really interested in trying to figure out how we can get some of what I call children's books for adults created.  And let me tell you, this is really hard.  Experts talk to each other in code. They use acronyms.  I'm not as familiar with the nuclear stuff as I am with others, and I've missed a lot of stuff here because you're all talking in your secret language.  And you've got to figure out how you get the story out so the guys in  Missouri and Mississippi and Montana and anywhere else you want to go look can begin to understand what this is about. 

I have to say I have been really disappointed with the media, and maybe it's because you guys aren't creating stories.  But only yesterday was there a piece in the Post about how -- I don't even remember what it was -- oh, it was about the coal thing.  I kept saying, why weren't they writing about this two years ago?  It's getting this national conversation going.  So you who know about it have to get in front of the media so they write about it.  It's about getting it out and so you get people asking questions.   

But you have to get it down into simple terms.  This is a very complicated problem.  You need to understand what the trade-offs are, Jim, which is, I think, what we talked about last night and you're talking about today, but if it's all up in this -- well, these are the financial issues or whatever, you'll lose the audience.  And I think you've been very articulate in the way in which you've been telling your story about how complex it is.  Maybe -- you know, people may shudder at this, but maybe we need more people who can do for some of these issues what Al Gore did for the carbon story, because you have to get it down so the rest of us can understand it. 

When I started the Energy Seminar, which is funded by the Defense Department but open to anybody -- it's called Energy: A Conversation About Our National Addiction -- I started with the assumption that perhaps half of 1 percent of the public understands this and the rest of us don't.  And we don't have the ABCs, the time tables or the periodic tables to understand what's being told. 

So I'm going to urge you all to figure out how you communicate. If you want to change that paradigm, that's changing behavior.  That's very hard.  I'm a social anthropologist. I've been working on changing behavior for 30 years in the Defense Department.  And at the moment, I have this army of 2,000 ants -- the metaphor doesn't work terribly well -- and we're pushing this log up a mountain, and indeed it's working inch by inch.  But it takes a lot of time.  It takes a lot of talking to individuals.  And it means simplifying the story. 

So that was more of a speech, but I'm really going to ask you about how you would go about creating books like David Macaulay's "How Things are Built," or "Castle" or "Cathedral," you know, all this, and you start understanding. 

ROGERS:  My only comment is, is I used to be a newspaper reporter and I was taught you had to get it to an eighth grade level of comprehension.  But the fifth grade is a new challenge. (Laughter.) 

SPURGEON KEENY:  I wondered if the members of the panel could comment on whether any of their considerations include the administration's proposal, GNEP, which involves the employment of a large fleet of fast nuclear reactors as part of a complex nuclear cycle.  I wonder whether any of the discussion has taken into account what such a program would mean economically and how it would affect the investment climate to pursue the nuclear option. 

HARDING:  The Keystone Group did look at the relative economics of a once through and closed fuel cycle, and we also looked at GNEP.  We didn't spend a lot of time on that subject because I think we were broadly in agreement, and we spent a lot of time on issues where we disagree.  But the MIT study in 2002 with much lower uranium prices found about a four-fold difference -- four-to five-fold difference between an open fuel cycle and a closed one at $13.00 a pound of uranium.  If you go to current uranium prices and worry a little bit about possible market power in enrichment capacity, you get to a fuel cycle that is in the 1.6 to two-and-a-half cent range outside of my comfort level and about three to five times historical numbers.  But if you look at the cost of reprocessing and mixed oxide fuel fabrication, the lowest we were able to get was 3.4 to 4 cents a kilowatt hour, so probably a two-cent premium for reprocessing. 

Does it help the nuclear waste problem?  We didn't think so, but that's also 20 times higher than the 1 mil that we pay to address the nuclear waste problem, so it's hugely uneconomic.  At the higher end, it could jeopardize the operation of some reactors, existing reactors, and would certainly discourage the construction of new ones.  I don't know of anyone who thinks that fast reactors would be purchased under any circumstance by someone looking at other alternatives, including conventional reactors. 

So all the steps of GNEP -- thermal reprocessing, fast reactors, fast reactor reprocessing, mixed oxide fuel fabrication -- would be uneconomic on their own merits. 

GANTHNER:  We just stated in Keystone and I think Jim did a pretty good job of summarizing kind of our thinking about this.  We clearly didn't factor it into our decision in terms of going forward at our Cherokee County site. 

HARDING:  We didn't rule out doing research on this topic, but -- yeah, we did not include that in our analysis.  We were looking at 2015.  You know, the GNEP and all the associated facilities and all of that is much farther out.  CBO is working on sort of a synthesis study of reprocessing, recycling, and from what I've seen, I think they'll be in the same ballpark as what you were hearing. Right now it’s looking very expensive, so we would have just added it on to our estimates if we didn't make a specific estimate.   

CHRISTIAN NADAL:  Yes, I did not have access to the Keystone report.  But listening to Jim Harding, I have a couple of questions.   

The first one is, did I understand well that there are no comparisons to competitive energies in the approach of the report? This would be the first question, that if it is right, I have some difficulties.  Because there is no way of using the information if there are no comparisons, because the decisions of utilities or regulators and even public acceptance, if the fifth-graders can understand, is a tradeoff.  It is a tradeoff along with inconvenience. And maybe not for hydro where hydro is available, well, it is obviously a very good energy, even with some environmental inconvenience, but is the best one.  But for all of those it's a tradeoff, and this would be my first question.   

And the second question is about the approach.  While we can agree with the conclusions when you say that it is -- transmission is very important; regulatory policies are very important; financing of a lot of projects, not only nuclear, is very difficult in that environment and that all these processes are enormously unpredictable in the long-term.  But this is the challenge Jim Rogers has to face. But this is for me a starting point, not a conclusion, because you have to deal with these difficulties.  And if you are an observer, you can say that.  You can say, well, it is difficult for nuclear.  But you have to compare it with others, and you have to make a decision.   

ROGERS:  That's a really good point.  And I will tell you that I have tried to build a gas-fired peaker in the middle of a cornfield in Indiana.  And because we only operate a limited number of hours a year, the construction on that project was stopped one year, to build a gas-fired peaker in the middle of a cornfield.   

So my point on that is, anybody that's tried to build wind knows that there's opposition to building wind in some areas of the country. And we're in the business of developing and building wind farms.   

If you're trying to build a coal plant -- my goodness, what we went through in North Carolina -- to build a coal plant was pretty remarkable, the opposition to building a coal plant.  And so you start to say, well -- and even some renewables find opposition.  You are not going to build wind on the ridgeline in western Carolina.  You're not going to build wind on the coast of Carolina, and when the wind maps look at that part of the world, that's the only place you can build them. 

So the practical point is there is opposition to every type of approach to generating electricity.  And by the way, this isn't unique to the power business.  Try to build a refinery, try to build an LNG terminal, try to build just a factory that would employ a thousand people. So my point is is I think, yes, it is a challenge, and we got to be prepared to take them on, and we got to work our way through that, but we need to recognize that we're not -- and you made the point well -- what we're trying to do is not unique to the nuclear industry; it's shared by many industries and many forms of producing electricity in our industry. 

NADAL:  But my question was not to this Jim.  It was -- (laughter) -- 

HARDING:  The Keystone Steering Committee for this study made the decision -- before I was even asked to participate -- that they would not look at a comparison with other alternatives.  I don't know what went into their thinking process.  It may just be that the funders thought that was outside the scope, and they picked a set of participants whose skill range did not involve all the other alternatives. 

I still think it is useful in the sense that it is more sober in its assessment of nuclear reactor economics than any number of studies you can point to.  I agree absolutely with everything the other Jim said, that all the other resources have also suffered mightily in recent years.  I mean, everything is hard to do.  Making the conservation point, the energy efficiency point even -- sort of adding an exclamation point to the urgency of doing that and figuring out the business model for that -- it is the one thing you can do.  And in conversations that I have had over the last couple years with many CEOs of both public and private utilities, the smart ones appreciate how difficult all this stuff is, and I think are counting on retirement to solve that problem.  (Laughs, laughter.) 

DEEPTI CHOUBEY:  (Name off mike) -- with the Carnegie Endowment.  I care about climate change -- (off mike) -- and I agree with you that we need to talk about trade-offs.  And one question I have is this thing that I have heard -- and I wonder if it's part of your decision-making -- that what we do on climate change needs to be done within the next decade to avoid approaching the tipping point in terms of the amount of carbon dioxide in the environment.  If that is part of your decision-making, how do we account for these efforts right now in terms of resurgence of nuclear energy, because it won't make a difference. (audio break)

So I'm having an issue about how we balance that and still push for nuclear energy today -- (off mike) -- and I'm not sure it makes sense. It's not going to have the effect we want on climate change, and I think politically it's going to be challenging for -- (off mike). That's how I connect it in my mind, and I'm curious to know how you resolve that in your own -- (off mike). 

ROGERS:  First, those are very good questions.  Let me start by saying it took us 100 years to build up our use of fossil fuel, and I don't think we solve this in one decade.  I know we're at a critical point, and that's why we need to be focused on mitigation as well as adaptation.  And I think as you talk to people worldwide, they're turning more and more of their attention to the adaptation aspect of this.  And I think even those that have very forward looks, like Tony Blair, that talk about 50 percent reduction in our emissions by 2050, I think everybody recognizes that we clearly need what I would call cathedral thinking in solving the problem, and that is -- I mean, this kind of goes to (who retires ?), but the fact of the matter is all the great cathedrals that have been built in this world were built over many generations; those that worked on the foundations never saw the stained-glass windows, and those that worked with the stained-glass windows never saw the steeples.  We need a commitment to this longer than the term of the next president and longer than the term of any senator or congressman.  We need a multi-decade commitment, which is really 40, 50, 60, 70 years.  My greatest fear is, is that Congress passes a bill, says, "Done," and it really takes an intense, concerted effort over a much longer period. 

So my comment to you is not much can get done in one decade practically, and that's why we need both mitigation and adaptation strategies going forward.   

Your second question is really about the nonproliferation.  I have a point of view that says -- and I really focus on the -- Chris -- (name inaudible) -- said this yesterday -- the 2 billion people that don't have access.  In India alone, I mean, they think that they can have 600 million people that will have access probably by 2030, 2040.  I actually think a non-traditional thing for a guy like me to say is I think we need to give developing countries, almost in the context of universal access to nuclear energy.  The question is, how do you do it?  And I think it would be interesting to see what the smart minds -- how they would go to work and how they would address that issue.  I mean, I'm of the view that maybe you really need to build only 200 and 300 megawatt units.  I mean, I look at what the  Russians are doing.  The New York Times had a great story just this week that talked about the Russians were in India and then Romania and all around the world.  There's 26 reactors being built every place but here.  And basically what they're agreeing to do is we'll build your plant and we'll take the spent fuel back home to Russia. 

But my point on this is, is that we need to be also working contemporaneous, as we work on climate, to address the issue of bringing access to power to these 2 billion people.  And I think that's one of our important -- it needs to be done contemporaneously, not in lieu of.  And I think we can -- the nonproliferation thing gets more difficult to deal with, but I think it's -- again, it gets back to how strongly you feel about climate.  I feel very strongly about the need to address climate.  And if we -- and so we ought to take every conventional wisdom we have about proliferation, nonproliferation, every conventional wisdom about the size of a nuclear plant, every conventional wisdom about developing countries having access to it, and kind of challenge all those and see if we could come up with a better way.  Climate is that important an issue to us, and that we just really need to think about every aspect of what we do and challenge all the received wisdoms that drive our behavior today. 

HARDING (?):  If I can offer a bit of a comment on this.  The Keystone Group looked at a climate stabilization wedge 50 years hence, and also at forecasts of demand for electricity and nuclear power, and -- which only go out to 2030.   

Nobody forecasts beyond that stupid idea. 

So the credibility of that wedge was not something we could really test.   

But if you look at the forecast to 2030 for nuclear power, whether you look at the -- there are sort of two ones that we paid some attention to.  One was the International Energy Agency's World Energy Outlook, and the other one was the Energy Information Administration's international -- I forget what they call it, but international analysis. 

By 2030, the net additions to nuclear capacity are overwhelmingly outside the OECD and -- OECD, Japan, Asia, as well as Europe, and the United States.  The countries that have nuclear power are essentially replacing their existing capacity as it is retired.  So somewhere between 75 and 100 percent of net additions occur outside of that environment. 

A good chunk of that is in China and India.  In the best case, China goes for maybe 2 percent existing -- 2 percent of their existing electricity produced by nuclear power to 3 or 4 (percent).  India goes to maybe 6 (percent) from 2 (percent).  There's tremendous growth in both of those countries in electricity generation, overwhelmingly from coal.   

To push the envelope of climate change further, you got to push a lot of nuclear capacity into countries that -- like Vietnam, Indonesia -- countries that have no experience with it and that do indeed pose proliferation risks.  And if the result of that is bulk fuel handling facilities in those countries -- enrichment, reprocessing, mixed oxide fuel fabrication -- you have a world that's -- I think I said it last night -- hot, bothered and nuclear-powered. And that's scary. 

I would -- for the countries -- for the people that are not now connected to the grid, I have a lot more faith in on-site renewables as both more cost-effective for meeting their needs than I do with itsy-bitsy reactors that might emerge someday but don't exist now. (Audio break) -- 

QUESTIONER:  (Audio break.) 

MR.     :  (Audio break) -- I think the answer is absolutely yes, because -- a couple things, a couple observations on your question. 

First of all, I personally believe that plug-in hybrids -- if I had to bet the ranch today I'd bet on plug-in hybrids.  I think that's -- you hate to pick a technology this early on but I think it's coming faster than we think.   

The development of batteries is evolving.  We're very involved with start-up companies in Silicon Valley because we think that we're going to have to take our grid and move it from an analog grid to a digital grid.  We think that we're going to have to change out our transformers.  We think, from a meter standpoint, there might not be meters at the home, the meters might be at the transformer point.  And the ability to change that out -- and the meters will look more like computers, in terms of two-way communication; in terms of being able to remotely, kind of, operate with your customer.   

So I think that plug-in hybrids is part of the equation.  And every point you made in terms of renewables, you know, using them -- I mean, I think it's a rich set of opportunities that come with plug-in hybrids.   

I think the second thing I would say is, is that -- why am I so interested in energy efficiency?  I'm interested in it because I'm looking down the road at significant growth.  We have not had to build base-flow plants in a long time.  And you know I come from a background of being a consumer advocate as well as being a regulator. And so I see this as, you know, it's lower cost, it is lower risk, for me to invest in energy efficiency, but I need to make sure that the incentives are right because at the end of the day -- I take a stakeholder approach to the business and it's not just about my customers, which are critical, but it's also about the investors and we need to kind of get the (blue light?).  And I've always run my business based on -- how does it work in the community; what impact on the environment; what's it do to the customer; how does it affect the employees -- looking at all the stakeholders that have an interest in our company. 

So when I look at ”Save a Watt”, and that's -- and actually one of the legacy issues I hope I leave as Chairman of EEI, we've had extensive work where C.E.O.s are actually working on coming up with new models in small groups.  So I say our industry is awake on this issue.  We're moving forward on the issue.  We've got a lot more work to do.  But it's like a lot of things in life, it has been difficult -- even with our own people, to get them to move away from how we did it in the '80s and '90s where the focus was on educating people to energy efficiency -- (inaudible) -- using the technology that's evolving today, because I think at the end of the day the technology is going to be at a place that your approach to this is going to be fundamentally different.   

I mean, for instance, if I'm rolling out something to all my customers -- in the old world, even if something better came along we would roll out the thing that got approved in the DSM Program.  In the new world that I'm envisioning and trying to create, it's a world where if I got one-third through my customers and something came out that's better, I'd stop doing that and move to the new thing.  That will pull the development of technology going forward.   

So to get the kind of technology development we need in this country, it needs to be both pushed in terms of investment and R&D, but it needs to be pulled through the system.  We have not pulled energy efficiency technology through the system.  Our current model doesn't do that for a variety of different reasons.  So I look at this as low cost, low risk -- and I'd much rather spend $6 billion on energy efficiency than $6 billion on a coal plant or $6 billion on gas, or $6 billion on nuclear.  But I want to make sure, and what we've done is tie the “Save a Watt” value to a discount of our avoided costs.   

And so, again, my point is it's going to be cheaper for the customer than building a new plant to meet that incremental load, but it's also we need to be incented to make sure with actually deliver it -- and being, as they say in California "economically indifferent," that doesn't get anybody excited.  I'm trying to get people excited about making it happen because I think we can make it happen because of the significant underinvestment in energy efficiency. 

RYAN:  Okay.  Do we have -- I think we're out of time, we have to go to the lunch at -- would you join me in thanking our panel today.  (Applause.)  

Thank you so much.